So You Owe the IRS Money. Now What?
I sat down with a professional tax preparer, IRS enrolled agent, Lisa, to ask her questions about what you should do when you owe the IRS Money.
Lisa sees this everyday in her line of work, and she knows many tips and ways to handle this. Sometimes it takes people by surprise. You may feel scared and clueless about what to do next. Not only that, but sometimes you owe more money than you may even have.
Here are some ways to pay the IRS what you owe without ending up in trouble or hurting your credit score.
#1. File your taxes on time.
The traditional filing deadline is April 15th. However, for 2023, the deadline is April 18th. Make sure you know the exact deadline for your year so you don’t miss it.
The penalty for filing late is 5% of unpaid taxes for each month taxes are late, not to exceed 25% of what you owe.
#2. Filing an extension does not extend your time to PAY the taxes that you owe. It only extends your amount of time to file your paperwork.
The money is still due, so you are not actually doing yourself any favors to file late.
#3. You can set up a payment plan with the IRS.
You can read more about the types of payment plans and how to qualify here or here.
#4. Consult a licensed tax preparer to see if you are eligible to contribute to a traditional IRA to cut down on how much money you owe the IRS.
That will put some of that same money into your own future pockets instead of surrendering it over to the government. The deadline to contribute to a traditional IRA and have it count for the prior year is by the tax deadline, traditionally April 15th.
For example, even though this is already 2023, you can still contribute to your traditional IRA in March and have it count on 2022’s taxes. However, in order to do this, you must make sure you tell your bank or investment firm that your investment is to be marked as the previous year (in this case 2022).
#5. Change your tax withholding from work to decrease end of year tax requirement.
If you are consistently owing too much money at the end of each year, you need to increase the amount that your job holds out of your check so you do not get stuck with a big tax bill at the end of the year.
#6. Some people, with certain kinds of health insurance, can even add money to their Health Savings Account (HSA) to reduce their tax liability.
This works the same way as the traditional IRA contribution. It must be done by April 15th (April 18th for 2023). However, it only works with certain insurance plans. Check with your employer and your tax preparer to see if you qualify.
So in the end, how much tax you owe at the end of each year has just as much to do with whether or not you kept up with how much tax money you owed all year than which tax bracket you are in.
These tips tell you exactly how to stay on top of your tax debt. I hope this answers some questions and you are able to ease your tax burden. Big thank you to Lisa, IRS enrolled agent, for sharing these with us today.
